MSC Industrial Direct Company, Inc. (MSM) saw its shares decline on Thursday following the release of its fourth-quarter earnings report. The company’s performance fell short of analyst expectations, sending a ripple through the market.
Net sales for the quarter came in at $952.3 million, a decrease of 8.0% year-over-year, missing the consensus estimate of $959.7 million. This underperformance can be attributed to continued weakness in the heavy manufacturing markets, a sector where MSC Industrial has significant exposure. Additionally, the company is facing headwinds from non-repeating orders placed in the previous year.
The impact of these market conditions is evident in the company’s adjusted operating income, which plunged 27.8% to $94.2 million. This resulted in a compression of the operating margin to 9.9% from 12.6% in the same period last year. Adjusted earnings per share (EPS) also took a hit, falling 37.2% year-over-year to $1.03, missing the consensus estimate of $1.08.
Despite the challenging market environment, MSC Industrial remains optimistic about its future prospects. The company reported holding $29.6 million in cash and cash equivalents as of August 31. On October 10, the company increased its cash dividend per share from $0.83 to $0.85, payable on November 27 to shareholders on record as of November 13.
Looking ahead, MSC Industrial anticipates a decline of 5.5% – 4.5% in average daily sales (ADS) for the first quarter. However, the company expects an adjusted operating margin in the range of 7.0% – 7.5%. For fiscal year 2025, MSC Industrial projects free cash flow conversion of approximately 100% and capital expenditures of around $100 million to $110 million.
Kristen Actis-Grande, Executive Vice President and Chief Financial Officer of MSC Industrial, acknowledged the current uncertainty in the market, particularly concerning the upcoming election and sluggish customer activity during the holiday season. However, she also pointed to various improvements throughout the fiscal year that serve as positive indicators for future profitability and growth.
Investors seeking exposure to MSC Industrial can consider the First Trust RBA American Industrial Renaissance ETF (AIRR) and ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM).
As of the last check on Thursday, MSM shares were down 4.49% at $77.21.